AO power to extend time for submission of special audit report u/s 142(2A). Power of suo moto extension was inserted from 01-04-2008 only-Delhi High Court
ABCAUS Case Law Citation:
ABCAUS 1237 (2017) (05) HC
The Question framed for determination:
Did the ITAT fell into error in holding that the assessment order for AY 2003-04 was time barred given the pre-condition Clause (iii) of Explanation (i) to Section 153 (1) of the Income Tax Act which led to the amendment to that provision by Finance Act No. 2 Act of 1996
Assessment Year : 2003-04
Date/Month of Pronouncement: May, 2017
Important Case Laws Cited relied upon:
CIT v. Bishan Saroop Ram Kishan Agro (P) Limited
Madhya Pradesh High Court in CIT v. Dhariwal Sales Enterprises
VLS Finance Limited v. Commissioner of Income Tax
Brief Facts of the Case:
The return of the responding assessee was picked up for scrutiny and notice was issued to the assessee under Section 143 (2) of the Act. The Assessing Officer (“AO‟) directed the assessee to get its accounts audited under Section 142 (2A) of the Act within a period of 35 days. Thereafter, several extensions were granted by the AO; for 45 days, further 30 days, further 10 days and further 7 days. As a result of these extensions, the due date for furnishing special tax audit report fall on 7th July 2006. However, the special tax audit report u/s 142(2A) could not to be submitted by that date. Nevertheless, the report of the Special Auditor dated 7th July 2006 was sent under covering letter dated 12th July 2006 to the Commissioner of Income Tax and received by the AO on 17th July 2006. On the letter dated 12th July 2006 of the Auditor, the AO made an endorsement dated 13th July 2006 suo moto extending the time for submission upto the date on which the auditor‟s report was actually received i.e. 17th July 2006. The AO framed the assessment order on 17th September 2006.
Aggrieved by the assessment order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [“CIT (A)”] who allowed the appeal observing that the audit report was required to be furnished by 7th July 2006. Therefore, the limitation for framing the assessment expired on 6th September 2006. Accordingly, in terms of Section 153(1) of the Act, the assessment made on 14th September 2006 was clearly barred by limitation. Thus the assessment was held to be invalid and annulled.
Aggrieved by the above order, the Revenue went in appeal before the ITAT. The ITAT dismissed the Revenue’s appeal. After analysing Section 153 (1) of the Act in light of the facts of the case, the ITAT concluded that CIT (A) was justified in holding that the assessment was barred by limitation. The ITAT held that the proviso to subsection 2C to Section 142 of the Act was prospective. There was no application by the Assessee for extension of time for submission of the audit report. Therefore, the ITAT held that the order dated 13th July 2006 of the AO purportedly under Section 142 (2C) of the Act granting extension till 17th July 2006 was not valid.
Contentions of the appellant Revenue:
It was submitted that given the purpose and object behind the insertion of sub-sections 2A, 2B and 2C of Section 142 of the Act, the period between due date for receiving the audit report and the actual date when the audit report was actually made available should be excluded for the purpose of computation of limitation. It was submitted that when there was failure by the assessee to submit the audit report within the stipulated time, the assessee should not be allowed to take advantage of its own lapse and claim that the assessment order was barred by limitation.
Observations made by the High Court:
The High Court bserved that the language of the statute is plain. Section 142(2A) of the Act anticipates timely submission of the report of the Special Auditor. The Auditor who is to conduct special audit in terms of Section 142(2) of the Act is not an auditor of the choice of the Assessee. The auditor is nominated by the Revenue and his work is not controlled by the Assessee. Where the special audit report is unable to be furnished within the time stipulated by the AO, extension of time can be granted by the AO on an application made by the Assessee. The extension has to be for good and sufficient reasons.
It was noted that from 1st April 2008 a proviso to Section 142(2C) of the Act was inserted which provides that the AO may “suo motu‟ extend the period provided that the aggregate period originally fixed and extended period would not exceed 180 days from the date on which a direction was first issued to the Assessee for submission of report of the Special Auditor.
It was an admitted position that in the instant case all the extensions granted, except the last one, were on the application of the Assessee. The last date for submission of the report in terms of these extensions was 7 th July 2006. There was no application by the Assessee after 7th July 2006 for extension of time
The Court observed that as explained in the case of Bishan Saroop Ram Kishan Agro (P) Limited (supra) the insertion of the expression “suo motu” in the proviso to Section 142(2C) of the Act was only with effect 1st April 2008. Therefore, in the present case, when the AO on his own extended the period of submission of audit report to 17th July 2006, he had no power to do so under Section 142 (2C) of the Act. Consequently, the Court found no error in the orders of both the CIT (A) as well as the ITAT holding that the submission of audit report on 17th July 2006 was barred by limitation
Regarding the contention that the time taken in submission of the audit report dated 7th July 2006 to the Department, i.e., the period between 7th July 2006 and 17th July 2006 should stand excluded. The Hon’ble Court distinguished the judgment relied upon by the Revenue.
There was no error committed by the CIT (A) or the ITAT in holding that the assessment order in was barred by limitation. The question framed was answered in favour of the Assessee and against the Revenue.